When the affordability threshold for group health plans is adjusted for inflation under the Affordable Care Act (ACA), it provides employers with a little leeway when it comes to figuring out premium contributions. Even when the affordability threshold goes up, employers still want to make sure they offer an affordable plan to avoid penalties.
Know the employer affordability threshold changes for 2019
Here’s how the IRS’s Revenue Procedure 2018-34 breaks down 2019’s employer shared responsibility (ESR) affordability percentage:
- To satisfy the requirement of being affordable, an employer’s lowest-cost, self-only coverage option must not exceed 9.86% of an employee's household income. This is a slight rise from 9.56% in 2018.
- If an employer chooses to use the federal poverty level (FPL) “safe harbor” option to determine affordability, then an employee’s premium payment cannot exceed $99.75/month. This is up from $96.08/month in 2018. (More on this below.)
What does this mean for you and your workers?
The affordability threshold represents the highest percentage of household income that you, as an employer, can require an employee to pay for a monthly plan premium for the plan to be affordable. This figure is based on the least-expensive, self-only plan you offer that meets the ACA’s minimum essential coverage requirements that provides minimum value.
In short, you control whether your plans align with the affordability threshold. With the 2019 increase, you can effectively increase the price of health insurance, while still providing your employees with affordable coverage options.
Many employers rely on affordability safe harbors to make sure that they price at least one plan below the threshold, and avoid triggering any employer-shared responsibility penalties.
What are safe harbors?
The ACA created safe harbors as a workaround for employers. That’s because businesses and organizations don’t know the full household incomes for their employees.
Safe harbors include:
- Form W-2 safe harbor, based on an employee's W-2 wages, as reported in box 1.
- Rate of pay safe harbor, based generally on the employee's rate of pay (hourly wage rate multiplied by 130 hours per month) as of the first day of the plan year or the employee’s lowest hourly rate of pay during the month.
- Federal poverty line safe harbor, based on the FPL for a single individual. For many employers, using the FPL safe harbor for self-only coverage can simplify ACA reporting, and coding form 1095-C.
While these details are essential, they can also be time-consuming for a plan administrator. That’s why many businesses and organizations rely on benefits administration software that provides employee analysis services designed to help comply with the shared responsibility provisions of the ACA.
How does your benefits administration software help simplify ACA reporting?
If you had an average of 50 or more full-time employees, including full-time equivalent (FTE) employees, during the prior year, make sure your benefits administration software helps you stay ACA compliant. BeneTrac provides a suite of tools and services to help you stay compliant year-to-year, even when changes happen. Request a demo, and learn more.
Comply with the ACA affordability threshold limits
Addressing ESR provisions can be difficult, especially when it comes to tracking your full-time and full-time equivalent (FTE) employee count, and complying with the ACA’s reporting requirements. Challenges you might face include the following:
- Determining the number of full-time and FTE employees you have from among your full-time, part-time, and seasonal staff.
- Testing your coverage to make sure it meets minimum value standards (defined by ESR provisions), and is “affordable” according to wage data.
- Tracking hours during specific periods, as outlined in the ACA’s provisions.
- Managing changes in eligibility, especially when part-time/full-time status might fluctuate for certain employees.
As your dedicated benefits administration solution, BeneTrac’s employee analysis service can help you prepare for, and comply with the ESR provisions of the ACA.
- Employee-hour look-back tools help you plan and determine if the coverage you offer is adequate and affordable, as defined by the ESR provisions. And an on-demand look-back report can help you identify and manage eligibility changes.
- Modeling capabilities can help you determine the impact of different measurement periods for tracking hours that employees work.
- Meanwhile, you can generate a customized workflow in order to offer full-time employees and their dependents coverage per ESR provisions.
In addition, BeneTrac’s Coverage Adequacy Service provides an additional layer of support that can help meet coverage adequacy standards through reporting.
If you are an applicable large employer (at least 50 FTEs), you must make the choice between one of the following:
- Offer adequate and affordable coverage to your full-time employees and their dependents, not including spouses, or
- Potentially be assessed a shared responsibility payment to the government.
- With BeneTrac, you can:
- Test your current coverage for minimum essential coverage, and minimum actuarial value.
- Assess affordability, using the three affordability safe harbors, to compare your current health coverage against your FTEs wage data.
BeneTrac’s proactive tools and services help you meet the coverage adequacy standards, and more.
Don’t let worrying about details keep you from offering your employees health benefits that makes them feel good about where they work. We’ll help make sure your benefits picture is ACA-compliant with a suite of tools and services built around planning, preparing, and delivering benefits that matter to your people.
With BeneTrac supporting the benefits administration side of business, you can take a number of steps toward making health benefits a larger part of your organizational strategy—including recruiting efforts, retention, internal communications, and complying with state and federal laws. Contact a BeneTrac representative to learn more.